The unequal progressivity of the tax system

Posted: 21 September 2011 in Uncategorized
Tags: , , , ,

Who needs a political party protecting the super rich when economists will do it for them?

Greg Mankiw is one such economist, who argues that we need to “to keep an eye on the facts”:

If you can remember only one fact, make it this one: The middle class (middle quintile) pays 14.1 percent of its income in federal taxes, while the rich (top tenth of one percent of the population) pay 30.4 percent. (emphasis in original)

So, let’s stick to the facts. A little back-of-the-envelope calculation shows that, after all federal taxes are paid (using Mankiw’s definitions and the Tax Policy Center’s table of effective tax rates), the middle class ends up with $41,209 in income while the rich walk away with $1,717,281.*

That’s why the tax system, even with progressivity in the rates, reinforces a fundamental inequality in outcomes.

* This calculation actually understates the difference between the after-tax incomes of the middle class and the rich because, given the income data, we are able to use an average for middle-class incomes ($47,973) but only the lower bound for the rich ($2,467,357).

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